2009 was the year of upsets. It saw the socialist party defy polls and stampede to power with a staggering ten point margin, ending almost six years of New Democracy rule. It also saw the end of Kostas Karamanlis after a 13-year career at the helm of his party, and the next conservative leader-presumptive, Dora Bakoyannis, trounced at the polls by the populist Antonis Samaras. 2009 is the year in which Greece’s government bonds ceased to hold their A1-class status in every rating agency, and the Greek economy began to be reviled as the Eurozone’s basket case. It is the year in which a Greek prime minister finally told the European Union that Greece is benighted in corrupt and uncompetitive practices, and fixing the deficit will require structural, political and cultural changes. At the cusp of 2010, Greece is strangely balanced between a realisation of its own comeuppances and an irresistible hope that the country may finally begin to build for the longer term.
January – A reshuffle, excessive deficits, and a farmers’ blockade
The conservative New Democracy government staggered into 2009, dizzy from three massive scandals the previous year – a sexual and financial scandal at the culture ministry, revelations of kickbacks from Siemens and a land exchange between the state and Vatopaidi monastery which favoured the latter to the tune of tens of millions of euros.
A January 7 reshuffle attempted to turn a new page by shedding Agriculture Minister Alexandros Kontos and Deputy Foreign Minister Petros Doukas. Doukas’ signature had appeared on Vatopaidi land exchange documents when he was Deputy Finance Minister in 2005, and Kontos had initiated a search for land suitable for such an exchange. They were the last ministers associated with the scandal to go. Merchant Marine Minister Yiorgos Voulgarakis had gone in September and Government spokesman Thodoris Roussopoulos a month later – both key administration figures.
The biggest surprise of the reshuffle, however, was the replacement of Finance Minister Yiorgos Alogoskoufis by Yannis Papathanasiou following the international economic crisis. The media largely interpreted this as a pre-election cabinet on the logic that Karamanlis wouldn’t hand Papandreou a Europarliament election victory in June, which might cement a psychology of defeat, ahead of a general election scheduled for February 2010. So the scenario of a double election in June was the favoured one at the time.
A week later, Standard & Poor’s lowered Greece’s sovereign credit rating from A to A- in the first downgrading of a eurozone member, citing the country’s weakening finances. Spain and then Portugal would follow in creditworthiness downgrades within days. It would be the first of many revisions of Greece’s creditworthiness throughout the year. Greek stocks and bonds fell after the announcement.
Papathanasiou held his first press conference on the same day to explain why Greece had overshot its 2008 deficit target. Alogoskoufis had forecast a deficit of 2.5 percent in 2008. In January the European Commission estimated Greece’s 2008 performance at 3.9 percent of GDP, and that figure would later be revised to 5.1 percent as Greece admitted to revenue shortfalls of 4.5bn euros.
Car sales, bank lending to companies and individuals, bank values and capital flight from the Athens Exchange reached their worst levels in years.
On January 19, European Commission forecasts released for Greece warned of recession. The growth rate enjoyed in 2008 of about 2.9 percent would turn into a marginal 0.2 growth rate this year, the Commission warned, leading to Greece’s worst performance since 1993. The Commission based its finding on a predicted contraction in private consumption, tourism and shipping. Papathanasiou contradicted the finding, saying that Greece had consistently outperformed Brussels’ predictions over the years.
After four days of blockades, Agriculture Minister Sotiris Hatzigakis on January 22 announced 500mn euros in over-budget subsidies to farmers. The reason for the farmers’ protests was insecurity over falling food prices after a high in 2007. Some farmers said they had suffered an income drop of 50 percent.
The roadblocks continued, however, as farmers deemed that the money was not enough. Some were sceptical about whether it was even new money. ELGA, the Greek Agricultural Insurance Organisation, had spent an average of 457 million euros a year between 2003 and 2008, said PASEGES, the Panhellenic Union of Farmers’ Co-operatives. Another reason for farmers’ recalcitrance was that the European Union had not signalled that it agreed to the spending. The first contacts between the ministry and the commission occurred on January 27, five days after the package was announced. The blockades led to shortages on supermarket shelves as overland freight was backed up for miles.
February – EU says shape up, Revolutionary Sect arises
In the first week of February, Greece submitted a revised Stability and Growth Plan which formalised its difference of opinion with Brussels. Greece predicted a 1.1 percent growth rate in 2009 (far below its original estimate of 2.7 percent), followed by about 1.6 percent in 2010 and 2.3 percent in 2011. That contradicted the EU estimate of 0.2 percent growth for 2009, against a Eurozone contraction of 1.9 percent, and growth of below 0.7 percent in 2010.
Papathanasiou justified this difference of opinion as follows:
- He expected 5.7bn euros’ worth of public-private partnerships to come to fruition after years of paperwork, and through a broadening of the 2004 investment incentives law, which provided subsidies of up to 60 percent to businesses. The money for these projects would come partly from EU funds.
-Savings would also be made, Papathanasiou said, in a hiring rate into the civil service that would be below the rate of attrition, and a wage raise in line with inflation.
-Papathanasiou also announced a two billion euro fiscal stimulus package in the form of bonuses to pensioners, the jobless, farmers and the poor. He also repealed a 10 percent tax on the first 10,500 euros earned by the self-employed, a cash-raising measure rushed into law by Alogoskoufis in August 2008.
On February 18 a massive liquid fuel and fertiliser bomb was placed in the boot of a car parked outside the Halandri branch of Citibank in Athens’ northern suburbs. A security guard tipped off police, who defused the device. Revolutionary Struggle would later claim responsibility. Although the bomb did not go off, it represented a qualitative leap in domestic terrorism.
Under pressure from Brussels to reduce the cost of government, Karamanlis announced a 12-step plan including:
• A public hiring freeze in all ministries except health and education
• A ten percent cut in discretionary spending by ministries to save 500mn euros
• Computerisation of the health procurements system
• Merging or abolition of a thousand state enterprises in four months, getting rid of their boards of directors
• Better tax collection (evasion is estimated to cost Greece 10-15bn euros annually)
• Wage ceiling for CEOs of state companies
The savings and revenues of the entire package were not specified. Before the end of the month Moody’s downgraded Greece’s A1 bond from positive to stable.
March – Parties reject consensus, debt soars, Olympic is sold
Karamanlis was forced to deny that the country was in danger of bankruptcy, prompted by Greece’s being given a 20 percent chance of defaulting on its debt by world financial markets. The general accounting office found that the accumulated debt had soared to 262bn euros, 12bn higher than forecast for 2009.
Realising that the situation required unpopular measures, Karamanlis sought bipartisan support. He asked the opposition parties to form a consensus with government on how to handle the crisis, but they roundly refused.
The European Commission declared itself as yet unsatisfied with Greece’s expenditure cuts. It demanded a freeze on civil servants’ salaries altogether, a restructuring of social security and public health, and improved tax collection. Reports suggested that Brussels wanted Greece to cut its deficit for the year by 0.7 percent, or 1.8 billion euros.
On March 18 Papathanasiou announced that there would be no pay raise for about 500,000 civil servants who earn more than 1,700 euros gross. Higher earners in the public and private sectors would pay a one-off tax of between 1,000 and 5,000 euros, depending on earnings above 60,000 euros. The constitutionality of this was later disputed.
A scheduled EU report on March 24 told Greece to do more to save money and raise taxes. The Commission gave Greece six months to explain how it would bring its deficit below three percent by end-2010 and eliminate it by 2012. It also announced for the first time that it would recommend to the European Council that Greece be placed under the Excessive Deficit Procedure for two years. Figures released this month showed the expected deficit for 2009 to be above 5 percent.
One of New Democracy’s biggest successes in dealing with state corporations came in the middle of this bleak month. Development Minister Kostis Hatzidakis managed to get EU approval for the sale of Olympic Airways for 62.4 million euros to Marfin Group. Marfin also pledged to invest 70 million euros in the company. It was the culmination of no fewer than six attempts to sell or restructure the airline over 15 years. During that time, Olympic had come to lose roughly a million euros a day. The European Commission made no mention of 700 million euros in waived social security payments, fuel tax breaks, aircraft leases, voluntary redundancy schemes and operating losses it had wanted Olympic to return to the state. This, the lack of resistance from unions and the preservation of the company name, to which Greeks have become sentimentally attached, were Hatzidakis’ biggest successes.
April – The economic squeeze
Bank of Greece Governor Yiorgos Provopoulos told business leaders on April 8 that Greece had no leeway to spend its way out of the crisis. In a speech to the Hellenic American Chamber of Commerce he foreshadowed his upcoming annual report on the economy and suggested a ten year structural reform plan to curb waste and raise taxes effectively. These views would be fully fleshed out a week later in the bank’s report.
In April Papathanasiou began to squeeze taxpayers for VAT receipts, the new uniform property law and outstanding income taxes. Tax authorities targeted roughly 530,000 businesses and individuals for auditing to bring in an estimated 2.5bn euros, as the finance ministry scrambled to try and meet annual targets.
On April 10 Greece suffered its first US-style college campus shooting. Nineteen year-old Dimitris Patmanidis, an electrical systems student at a training centre run by the Manpower Employment Organisation (OAED), arrived at the Nikaia campus in southern Athens with two guns and started to shoot randomly. He seriously wounded an 18 year-old fellow-student and two staff members, and then took his own life. Police found a note on Patmanidis’ body explaining that he was fed up of being ignored and humiliated, and would “take the most valuable thing” his fellow students possessed.
On April 23 Supreme Court Prosecutor Yiorgos Sanidas decided not to send the Vatopaidi case file to parliament for the formation of a Special Court to try wrongdoing by ministers, as the constitution foresees. As the Pavlidis inquiry (see below) was building to fever-pitch throughout the month, the Sanidas decision came as a huge relief to the government.
May – The Pavlidis embarrassment and an early closure of parliament
On May 4, parliament voted by the thinnest of majorities – 146 against 144 – to acquit former Merchant Marine Minister Aristotelis Pavlidis from charges of extortion and bribery. The scandal – New Democracy’s biggest in 2009 and, as it turned out, the last of its five and a half years in power – sapped what little credibility the government had left after the string of scandals in 2008.
The Pavlidis affair had, in fact, begun in New Democracy’s annus horribilis. Shipowner Fotis Manousis had accused Pavlidis in August 2008 of demanding bribes in order to award him subsidised eastern Aegean passenger routes. The scandal returned with a vengeance, fanned by opposition media and spurring a parliamentary Preliminary Committee of Inquiry. The committee’s job was to report to parliament on whether it thought evidence existed of criminal wrongdoing. A plenary session would then vote to strip Pavlidis of his parliamentary immunity from prosecution. According to the constitution, as a former minister he would have to be tried by a Special Court comprised of the members of parliament.
Pavlidis and his family went through a gruelling process of depositions into their personal wealth. This produced some famous contradictions. For instance, Pavlidis’ daughter said that 235,000 euros were paid for her Neo Psyhiko apartment, whereas Pavlidis had quoted 156,000 euros. Sums amounting to some millions of euros entered various accounts owned by Pavlidis and his family between 2003 and 2008, which required explanation.
Throughout the investigation, senior New Democracy party members, including ministers, publicly called on Pavlidis to step down and submit to a judicial process rather than drag his party through publicity it could ill afford. The looming ballot on whether to acquit Pavlidis also put a wedge between the party leadership and the rank-and-file of deputies. The former wanted an acquittal on party lines, since a mere two defections would leave the government dependent on opposition support for an acquittal - whereas the deputies demanded a vote according to conscience.
Pavlidis insisted on using the political process to protect himself. In the event, the committee broke down on party lines. Its New Democracy bloc reported on April 29 that the evidence of criminal wrongdoing was insufficient for a trial. Opposition Pasok’s bloc thought there were grounds for at least five criminal charges, including passive bribery, extortion and money laundering.
The vote to acquit Pavlidis and spare him a Special Court trial was a Pyrrhic victory for New Democracy. Its reputation for both transparency and democracy had suffered irreparable damage through the inquiry itself and as a result of New Democracy’s reluctance to allow a secret ballot. And of course its committee’s findings were seen as entirely partisan.
On May 4 the European Commission reported a worsening outlook for the Greek economy in 2009. It now forecast the decline in growth at below -0.5 percent, and the aggregate debt at above 100 percent of GDP against Greece’s prediction of 96 percent.
Three days later, the European Central Bank (ECB) lowered its baseline interest rate to a historic low of one percent, in order to provide cheap capital for banks and governments. Until the end of the year, when ECB Governor Jean-Claude Trichet announced the end of the measure, Greek high street banks would absorb about 40 billion euros’ worth of cheap credit to take advantage of the 4-5 point interest rate difference with Greek bonds. They profited so massively from borrowing cheaply from the ECB and buying Greek sovereign debt that they would be forced to return some of the capital to the ECB at the end of 2009.
On May 8 the conservative government announced a surprise early shutdown of parliament for an extended estivation. Parliament normally closes at the end of June. The government cited Europarliamentary elections on June 7 as the reason. Pasok called it an “institutional derailment”. The media interpreted the move chiefly as a pre-emption of four major investigations Pasok still hoped to bring to parliament – the sale of the Germanos shop chain to OTE, the Vatopaidi land exchange scandal, the allegations of bribes by Siemens to government figures and a 2006 government bond sold to four pension funds at an enormous profit to middlemen linked to the conservative party. Constitutionally, the end of the parliamentary session placed a statute of limitations on these cases.
Revolutionary Struggle finally managed to detonate a bomb inside a bank – an ambition thwarted in January. One May 12 they blew up the Argyroupoli branch of Eurobank in southeast Athens, causing material damage. Four perpetrators on two powerful motorcycles made good their escape despite the presence of a police patrol car.
On May 17 the two major parties announced their candidates for the upcoming Europarliament elections, with Pasok leading by as many as five points in the polls. In a televised interview on May 27, Pasok leader Yiorgos Papandreou issued his slogan, «Αλλαζουμε η βουλιαζουμε» (we change or we sink), and framed the Euroelection as the first step in a change on the national political scene.
June – Pasok’s first victory and the New Acropolis Museum
On June 7 Pasok scored its first electoral victory since it fell from power in 2004. The victory was largely expected (the latest polls two weeks before the election had put Pasok ahead by anything between 2.8 and six points). The shock was not so much that it beat New Democracy by 4.3 points in the Europarliamentary elections, but that the victory was owed less to Pasok’s gains (it was 2.6 points up relative to its performance four years earlier) than to New Democracy’s losses of 10.7 percent relative to 2004. The other great winner was right-wing LAOS, which rose from 4.12 percent in 2004 to 7.14 percent. The Ecogreens got into Europarliament for the first time with a single MEP on 3.45 percent of the vote.
The LAOS victory, in particular, sent ND a strong message that its immigration policy had to change. Police sweeps through the heart of Athens removed thousands of illegal immigrants from view and emptied the former court of appeals building of squatters. A bill passed by parliament late in the month set apart seven disused military camps and other sites throughout the country for redevelopment as concentration camps where illegal immigrants would be kept for up to nine months. Until then authorities gave them 30 days to leave their country of their own volition.
But try as it might to effect a psychological turnaround, New Democracy kept stumbling on scepticism from its own side. Argolida backbencher Yannis Manolis expressed this most forcefully when he announced on June 16 that he would not be putting himself forward as a New Democracy candidate in the next general election.
Revolutionary Sect – a nihilistic group that made its first appearance in January – struck its first fatal blow on June 17 with the execution of a plainclothes policeman guarding the key witness to a terrorism trial. The killing underlined yet again the decline in public safety under New Democracy that had contributed to the rise of Laos.
The New Acropolis Museum was inaugurated with great fanfare in three ceremonies on June 18, 19 and 20. In his speech, Culture Minister Antonis Samaras forcefully raised the issue of the return of the Parthenon Marbles from the British Museum, saying “the Marbles are calling the Marbles.” In return, he offered the keep the BM’s Duveen Gallery permanently filled with a rotating exhibition of other antiquities. The British Museum congratulated Greece on the inauguration and remained reticent on the thorny issue.
In a further sign of deficit desperation, on June 25 the government announced increased taxes on fuel and luxury goods such as mobile phones, pleasure boats, lottery winnings and luxury cars. It would also sell an amnesty for open-air spaces incorporated into homes (such as solaria). The measures were to bring the 2009 budget an estimated two billion euros.
July – a constitutional conundrum
Pasok leader Yiorgos Papandreou declared that his party will not vote for the re-election of Karolos Papoulias as president in February 2010, making a general election in early 2010 inevitable. The 151 ruling conservative MPs would need to build a two-thirds majority (200 MPs) to elect him in two voting rounds or a three fifths majority (180 MPs) in a third round. If New Democracy failed to garner the votes, article 32 of the constitution allows for a further three voting rounds under a new parliament, which means a general election.
The position triggered a constitutional furore among experts. Athens University's Yiorgos Kasimatis (To Paron, July 12) and Dimitris Tsatsos (Kathimerini, July 19) argued that a candidate could only be rejected on the basis of suitability for the job. Pasok was therefore acting unconstitutionally.
Nikos Alivizatos (Kathimerini, July 26) argued that the executive needed checks and balances, and that since the constitution doesn't provide them this clause of article 32 is one of the few offered to the opposition. He said the presidential election trigger is “the only institutional counterweight to the excesses of prime-ministerialism. In other words, the only check on what [Alexis de] Tocqueville called 'the tyranny of the majority'.”
If there had been any doubt about the likelihood of an imminent general election that was now dispelled. New Democracy had been implying one by closing parliament early and stepping up public hiring as of April. But Pasok now stole a march on the conservatives by setting the terminus ante quem.
On July 31 the Paris-based Organisation for Economic Co-operation and Development (OECD) published its biannual outlook of the Greek economy, forecasting a 1.25 percent shrinking in 2009 and a budget deficit of just over six percent of GDP, growing to 6.75 percent in 2010. These forecasts were far more pessimistic than anything the government would agree to at the time.
August - Feu! Feu!
The OECD’s projections were quickly reinforced on August 6 by similar ones from the Washington-based International Monetary Fund (IMF). It foresaw a 1.7 percent shrinking of the economy in 2009 and a deficit of 6.2 percent of GDP, growing to 7.5 percent in 2010. Officially, the Greek position was still for a modest growth of 0.2 percent and a deficit of 3.7 percent.
On the evening of August 21, the fire brigade fatally underestimated a small fire reported in the area of Grammatiko in northeast Attica. Several fire trucks that rushed to the scene were unable to master the situation overnight, and the fire chief failed to dispatch water-dousing planes and helicopters at first light. As the morning wind picked up it sped the flames past any hope of control towards Marathon Lake. The fire scorched the lake’s northern shores and carried on in a southwesterly direction towards the inhabited areas of Agios Stefanos, Stamata, Rodopoli and Dionysos.
By the third day the fire had taken on the scale of a national emergency as municipal water tankers and the armed forces threw themselves into the fight. Still they retreated as the flames spread to Mount Pendeli, Pallini and Pikermi. At the height of operations almost 200 fire trucks, dozens of water tankers, 14 airplanes and seven helitankers were in operation not including the contribution of the armed forces. Only by evening did they manage to place the flames under control.
The tally of destruction was formidable. Sixty five homes were completely destroyed, and a further 143 partly destroyed. The blaze tore through more than 20,000 hectares (50,000 acres) of pine forest. It was New Democracy’s second major environmental disaster after the forest fires of August 2007, which had burned 2.5 percent of the surface area of Greece - a record.
September – Election fever
Following political scandals, a breakdown in law and order and the financial and economic crisis, avoidable natural disaster seemed to place a tombstone on the government of New Democracy.
Not surprisingly, on September 2 Prime Minister Kostas Karamanlis announced a snap general election. His argument was that painful economic measures to tame the debt and deficit required a new mandate. He cited tightening tax collection, making structural changes to the economy and shrinking government. He also said he wanted to avoid the extended campaign season that the autumn would inevitably be after Pasok’s threat to force an election in March.
Finance Minister Yannis Papathanasiou met with Economic and Monetary Affairs Commissioner Joaquin Almunia to ask for a two-year extension on a 2010 deadline to bring the deficit below three percent of GDP, confessing openly that his January Stability and Growth Plan was now unrealistic as the recession was affecting state earnings. Newspapers reported that the finance ministry was planning to claim as much as eight billion euros’ worth of tax arrears and auction off state property in order to save the 2009 budget from further slippage.
On the same day, a massive, Oklahoma City-style bomb exploded outside the offices of the Athens Exchange. It was later claimed by Revolutionary Struggle, which issued a punishingly long proclamation in Pontiki newspaper about how equity and financial markets had brought on the financial crisis.
Greece dropped in the World Economic Forum's Global Competitiveness Index from 67th place in 2008 to 71st place in 2009, among 133 countries. The statistic confirmed what many economists believed to be the country’s root problem. On September 22 the country’s five biggest bilateral chambers of commerce rallied behind a report from the Institute for Economic and Industrial Research, which outlined 123 steps to make the Greek economy more competitive.
Greece now admitted to a six percent deficit, negative growth of half to one percent of GDP and aggregate debt of over 100 percent of GDP.
The Bank of Greece also had unhappy revisions to report. Total public and private sector borrowing for the first two quarters of 2009 reached a record 391.1 billion euros, or 163 percent of GDP, a 16 percent rise on the same period last year. But since private sector borrowing actually went down, the rise was entirely due to the government. Its debt went from 187.9 billion in 2007 to 227.3 billion in 2008, 233.6 billion in the first quarter of 2009 and 255.5 billion in the second.
October – Pasok triumphs
Pasok won an unexpected landslide in the October 4 general election of 43.92 percent of the popular vote, taking 160 seats in a five-party parliament. New Democracy disgraced itself with 33.48 percent and 91 seats. Pasok’s gains over five and a half years of conservative rule were a mere 3.5 percent of the vote, compared to ND’s loss of 13 percent. Looking crestfallen on election night, Prime Minister Kostas Karamanlis announced his departure and called for immediate elections for a new party leader.
The Communist Party of Greece (KKE) held onto 21 of its 22 seats with 7.54 percent of the vote and Syriza ably survived the jettisoning of Alekos Alavanos, winning 4.6 percent of the vote and 13 seats. However, it slipped in rank, ceding fourth place to Laos. The right wing party, which only entered parliament in September 2007, managed to raise its popular margin from 3.8 to 5.63 percent and its seats from 10 to 15. The Ecogreens did not manage to enter national parliament, but polled a strong enough margin - 2.53 percent – to try again.
The day after the election, the finance ministry sent information to Greece’s national statistical service that upped the 2008 deficit from 5.1 percent of GDP to 5.7 percent, and the debt from 97.6 to 99.5 percent. And on October 6 Bank of Greece Governor Yiorgos Provopoulos told reporters at the IMF gathering in Istanbul that he forecast a 10 percent deficit for 2009 (Greece's official estimate was six percent).
First impressions of the new government were positive. A Public Issue poll published a week after the election found that 83 percent of voters had a positive impression of the new government, including 70 percent of ND voters.
The government began to work on its first pieces of legislation. The finance ministry set to work on the 2010 budget. The employment ministry announced that its first piece of legislation would improve the lot of retirees who are penalised by drawing from multiple pension funds by 6-12 percent. The newly formed environment ministry took over unfinished legislation to legally incorporate solaria and built-in verandas into the square footage of houses, but ultimately froze the bill.
The development and merchant marine ministry faced a major early challenge in the strike declared by crane operators in Peiraieus to fight the concession of a container terminal to Chinese Cosco. Unwilling to openly challenge the dockworkers' union, Pasok sent the matter for lengthy court arbitration. On November 10 the court ended the strike. In the meantime, however, Pasok tried to interpolate on the original agreement an undertaking by Cosco to provide work for crane operators on pier 1, which remained under public ownership, after its lease of pier 2 was over. Cosco was unhappy to revise any of the fundamentals of its original lease, which had been ratified by parliament.
The European Commission published its annual report on the Greek economy on October 14, and said the country needed to make good a 14.1 percent of GDP “viability deficit”, equal to about 32.5bn euros.
On that same day Papandreou spoke in parliament for the first time as PM, calling for a new electoral law on the lines of the German model. He suggested 160-170 single-seat constituencies and six multiple-seat constituencies, where the MPs would be chosen from a list. The first party would receive a 40-seat bonus. He hoped that with ND’s support he could get the law to apply from the next election.
Papandreou visited Nicosia on October 19 and attempted to resurrect Cyprus policy along the lines of a) reinforcing Greece's commitment to full Turkish membership, b) holding Turkey to recognition of Cypriot exports, and c) making a common front with Cyprus on influencing the annual EU report on Turkey's progress. Ten days later he would meet Nikola Gruevski on the sidelines of an EU summit, to assert Athens' redlines on Macedonia policy: a universal name solution for all uses under the UN process.
While Papandreou was in Nicosia, Finance Minister Yiorgos Papakonstantinou had his first – and most uproarious - Eurogroup meeting. The bone of contention was his new deficit and debt figures for 2008 and 2009. The outgoing ND govt had sent figures a few days before the election to the effect that the 2008 deficit was 5.7 percent and the outlook for 2009 was 6 percent. Papakonstantinou's preliminary revision was for 6.5 percent for 2008 and over 12 percent for 2009. He asked until 2012-13 to bring the deficit under three percent, presented immediate measures for cost containment and set a goal of a deficit of 9 percent for 2010. The Eurogroup was displeased with both the revisions and the measures. Its leader, Jean-Claude Juncker, said that Greece's revisions had to end or they would cause problems to the credibility of the entire group. “The game is over,” he said in irritation.
The following day Bank of Greece Governor Yiorgos Provopoulos presented an interim report on monetary policy in which he supported lowering the deficit by 4-5 percent of GDP in 2010-11 (i.e. by 9.5-12 billion euros), and 1.5 percent thereafter. This indirectly supported Papakonstantinou’s rate of reduction, as opposed to more shocking adjustments.
But Papakonstantinou would learn that the markets and media would be harder to contain than his European peers. On October 23, the credit rating agency Fitch's demoted Greece's rating from A to A-, following the skyrocketing deficit and debt figures. A week later, Moody's would say that it is also reviewing Greece's A1 status.
Media attention was temporarily diverted to the Gaia Paasikivi police precinct in the northern Athenian suburbs. On October 29, assailants on motorcycles fired 100 Kalashnikov r0unds into the building, wounding several officers.
November – the 2010 budget and Samaras’ triumph
The European Commission submitted its report on the Greek economy on November 3. Its new outlook was bleak. Its deficit figure for 2008 was retroactively revised to 7.7 percent, and it saw deficit figures of above 12 percent of GDP until at least 2011. It also saw the debt climbing to 135 percent of GDP in that period.
Two days later, Papakonstantinou submitted a draft 2010 budget to parliament, which threw the weight of deficit reduction on new income. He planned to raise 4.5 billion euros from a slate of measures including:
- higher income tax on the better off
- abolishing flat taxes on certain professions and bringing them into the tax scale
- a special tax on large real estate holdings
- higher consumption tax on cigarettes and alcohol
- a one-off redistribution tax on 300 profitable companies that made more than five million euros in profit last year.
The Eurogroup demanded more action on the cost-cutting side, and the European Commission confirmed that it would recommend to the Council that Greece be put under the Excessive Deficit Procedure as of January 1.
Within days of the general election defeat, New Democracy’s lieutenants had been declaring their candidacies for the party leadership. Former foreign minister Dora Bakoyannis had, for a number of years, been the presumed frontrunner to succeed Karamanlis. Her candidacy received a body blow on November 10, when Dimitris Avramopoulos announced that he would support former culture minister Antonis Samaras, her main rival.
Samaras and Avramopoulos fought on ideological grounds. They promised to create “effectively the first urban party based on principles, which seeks the governance of the country without nepotism, hereditary political entitlements, opaque procedures, personal power machines and decisions made without consulting the party base.” Dora Bakoyannis responded in a speech to the party youth the same day. “The political and ideological entrenchment of New Democracy is a recipe for failure. A New Democracy with a new leader and old attitudes has no future.”
Whereas Bakoyannis ran as a centrist, Samaras said ND had lost because it had been ashamed to own up to its ideological roots as a liberal, conservative party committed to competitiveness and low taxes, fiscal discipline and law and order. Bakoyannis lost by a wide margin to Samaras in a vote thrown open to the public on November 29 - 50.2 percent to 39.5.
In the middle of the month, Education Minister Anna Diamantopoulou ran into her first problems with teachers’ unions. She told a press conference that hiring in education will be done through the Supreme Council for Personnel Selection (ASEP), per the govt's election promise, not from seniority tables kept at the ministry. Diamantopoulou also wanted to institute a two-year trial period in which poor choices of teacher could be weeded out.
The reactions from the unions, OLME and DOE, were such that a few days later Diamantopoulou said there would be an admixture of the merit and seniority systems. A week after her initial press conference Diamantopoulou said the entire revision to the hiring system would be put off until the 2011-2012 academic year.
Greece dropped from 57th place to 71st in Transparency International's annual Corruption Perception Index on November 17.
Papakonstantinou submitted the final 2010 budget to parliament on November 20. It forecast income of 53.7 billion euros against 49.3 billion in 2008. It foresaw expenditure of 69.8 billion euros - a deficit of 16 billion. It was only slightly tougher following its presentation to the EU, promising to reduce deficit to 9.1 percent of GDP from 12.7 percent in 2009.
Against EU wishes, it promised a 1.5 percent raise to public sector employees earning under 2,000 euros a month, but it also reduced their benefits by 10 percent, an effective four percent pay cut. It also adopted the ND plan of freezing all hiring in the government except for education, health and citizens' protection. As of 2011 there would be one hire for every 5 departures.
December – Riots and consumer woes
Thousands marked the first anniversary of the police killing of teenager Alexandros Grigoropoulos with a peaceful march. It turned violent when some hundreds of rioters occupied the University of Athens Law School campus and adjacent classroom buildings. They broke masonry and hurled it at police, who responded with teargas and stun grenades. The violence continued the following day despite a call from Grigoropoulos’ father for nonviolent memorials. Over three days police arrested 125 people, including at least a dozen non-Greeks, and detained over 300 – far more than they did over two weeks of rioting in 2008 – a sign that they meant to end this anniversary quickly.
The riots were most important in that they provided a pretext for the university to re-interpret asylum. On December 7, Athens University Dean Christos Kittas asked police to surround and protect the downtown campus because pavements and streets are not covered by asylum law. Police did not enter the building, but effectively sealed it. A few days later, the university announced that administrative and secretarial offices are not covered by asylum law, and on this basis would institute controlled access to the building for card-carrying students, staff and visitors only. A new guard would enforce this, and the dean would in future have to approve all events on premises.
Greece’s credit rating suffered further downgrades, leading to fears about the cost of borrowing and the possibility of default. Fitch's downgraded Greece to BBB+ on December 8, sending the stock market down 4 points for a total day's loss of 6 points, with banks suffering a nearly 9 point loss. Papakonstantinou said Greece may take additional measures to lower its deficit in a supplemental 2010 budget. But he reacted angrily on December 16, when Standard and Poor’s announced Greece’s second downgrade within a year, from A- to BBB+. The finance ministry said the agency failed to properly assess its deficit-reduction measures in the 2010 budget. Relief came in the form of a mild downgrade by Moody’s on December 22 from Α1 to Α2 with a negative outlook. That put the Greek bond two notches above the B status it had suffered in the other agencies.
ECB governor Jean-Claude Trichet warned that not enough has been done in 2010 budget and told Europarliament that “we all know the very important and courageous decisions that will have to be taken”.
Prime Minister Yiorgos Papandreou attempted to restore confidence in Greece in a speech on December 14, in which he stressed transparency measures. It was not what the markets wanted to hear. The following day, the Athens Exchange dropped 2.1% led by a 4% fall in bank shares, and Greek bond spreads increase by 23 basis points.
Parliament passed the deficit-reduction budget on Christmas Eve. Although Papakonstantinou said he would aim for a 4-point deficit cut from 12.7% to 8.7%, his budget officially aimed to reach 9.1% of GDP. The budget was passed along party lines, with 160 votes in favour. The fiscal adjustment was of the order of 8.4bn euros.
Meanwhile back in the real economy, retail sales were reported to be down 30 percent on Christmas 2008. Poor consumer sentiment was combining with a general trend away from high street shops and towards malls to drive many merchants to thoughts of bankruptcy in the new year.